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Sora is dead
It turns out that spending hundreds of millions for users to make useless slop videos was having a meaningfully negative financial impact. The bizarre thing is that Disney signed a $1b deal with OpenAI just a few months ago - who fucked up here? Of course, there are many more video AI tools out there, with fewer considerations for copyright law. But for now, Hollywood doesn't have much to worry about, at least on this front.
I fucking hate the internet. People refuse to do thier due dillagence, spouting off uniformed one-offs to generate click-revenues without doing thier goddamn due dillage and include some fucking references.
Yes, I'm ranting. Why? Because of one-off remarks on twitter claiming '"Massive investment in AI contributed basically zero to US economic growth last year," per Goldman Sachs'
Clearly, this is a big deal. Quite the claim. Wonderful. Delightful. You'd think they'd have the decency to actually include a fucking link to the article claiming this, but no. More slop for the midwits.
This did not satisfy me. So, I went sluthing, and found the article that sources the claim, which is... a goddamn video interview.
For fuck's sake.
But no. The wizard is undetered. Thankfully, my stubborness in the face of video essays means I have have semi-reliable sources for grabbing youtube transcripts, which I promptly did so to find the money quote. Which I will share for you now;
Interviewer: What surprised you and what didn't in 2025?
Jan Hatzius: Yeah, what surprised us was that the increase in tariffs was bigger than what we had in our baseline assumption, closer to our our risk case, but uh definitely a more pervasive increase in in tariffs.
And that I think explains why US growth was was weaker. The the the shock was bigger. But if I step back from the specific numbers, I think the title of our outlook going into 2025, which was tailwinds, probably Trump tariffs, held up reasonably well. [...] Second driver of growth in 2026 is the fiscal boost. The tax cuts in the one big beautiful bill act which are taking effect mainly in the first half of 2026.
And there's an an aspect here of full expensing of plant and equipment which is going to have a positive impact on the corporate sector and probably on business investment. Tax refunds for households are going to be quite a bit higher than normal. That should support consumer spending. And you know, we're estimating that fiscal policy adds a half to 3/4 of a percentage point to growth in the first half of this year.
And then lastly, financial conditions have been easing as we've gone through most of 2025, at least post liberation day. And that's been for a variety of reasons, but in part because the Fed's been cutting interest rates. And that impulse to growth is also probably going to be most visible in early 2026. So all of that gives us a an above consensus uh growth estimate.
You'll note that one uh one item that may be missing from this list is AI investment. Uh we don't actually view AI investment as strongly growth positive.
I think there's a lot of misreporting actually of the impact that AI investment had on US GDP growth in 2025 and it's much smaller than is often perceived because most equipment most AI equipment is imported and that means there's a positive entry in the investment line but that's offset by a negative entry in the net net exports line And a lot of the AI investment that we're seeing in the US adds to Taiwanese GDP and it adds to Korean GDP but not really that much to US GDP.
Interviewer: Can I just pause there for a moment because at your point and I think this is in the forecast as well is that basically AI investment has been negligible to US GDP growth in 2025. Is that a fair assessment?
JH: Yes. Basically zero. Basically zero.
Interviewer: That seems completely counter to the narrative we read almost every day in financial media. What we hear talked about AI capex and boosting and how that's it's basically supporting the US economy through tariff headwinds and otherwise. Where is the disconnect between the reporting and what you're saying here?
JH: Well, again, I think some people forget that you need to look not just at investment but also at net exports. just from an from a GDP accounting perspective. There's another more technical point which is that some of the AI investment as the AI investment directly in semiconductors isn't actually classified as investment in the national income and product accounts. It's classified as intermediate inputs. So the the national income and product accounts miss that part of investment spending. So we've talked about the the true GDP impact which is still very small but positive positive contributor to growth in in 2025 and then the measured GDP impact which is literally we estimate uh zero.
Interviewer: Okay. I think that's just an incredibly important point to underscore and take forward. And then in 26 you estimate slight increase there as investment comes more online.
JH: We do. We do, but it's still pretty small. I mean, the the the significance of AI and the AI trade and, you know, none none of what I'm saying means that I don't think AI is important, right? It's I think it's very important and it's obviously very important for financial markets, but the specific impulse from AI investment on GDP is still going to be pretty small. Although I do think it's going to be positive to a limited degree this year.
Please excuse any odd errors in the transcript taken straight from youtube. People's direct quotes can sometimes translate oddly to text. Some of the interview has been excised for brevity, as marked by '[...]'
I have suffered through find all of this information, and now you must suffer through reading it. The above discussion can be taken almost straight from the start of the video, should you wish to double-check the above quotes.
And I note all of this above to venture to wonder if we'll see, if not a bubble popping on AI this year, atleast some severe evaporative cooling. It's something to question by this point, but it's always good to recall that markets can remain irrational longer than you can remain solvent.
How can this be?
NVIDIA's revenue for fiscal year 2026 (ending January 25, 2026) was $215.94 billion
Nvidia revenue would be roughly 0.7% of US GDP if it were all in America. Nvidia margin is about 75%. So 25% of revenue goes to manufacturers in Korea or Taiwan. Maybe another 25% is foreign employees, operating expenses abroad. At least 50% of Nvidia should be derived as US economic activity. The chips are designed in the US after all. That's a cool 100 billion dollars or 0.3% of GDP, nothing to sneeze at.
Then there are all the other AI hardware companies like AVGO, the cloud providers like Azure or AWS, the AI companies themselves.
How could people possibly be building these gigantic datacentres and not have that picked up in GDP? https://youtube.com/watch?v=VLgDvjcvURc
If GDP is somehow not measuring the impact of AI investment then so much the worse for the GDP calculators I think. And it's not even clear that this is the case, EY seems to disagree:
https://www.ey.com/en_us/insights/ai/ai-powered-growth
I don't know if EY knows better than Goldman Sachs, I don't have a high opinion of either. However, I think that there are lots of people who want to hear that the bubble is popping and grasp for any sign that it is.
Imagine that it was the 1910s and tractors were the big new thing. Obviously tractors raise agricultural productivity. But maybe they're kind of unreliable, maintenance for this new technology is a bitch, maybe the methods for using them aren't well-established, maybe there's some difficult soil where the tractors get bogged down, maybe fuel distribution in the countryside isn't well-developed. There are lots of conservative farmers around. One could easily produce convincing anti-tractor arguments and examples. But in general, tractors would still remain the future of agriculture, profitable to produce and use. You could derive this from first principles, considering the power of engines and their utility vs horses. There was no tractor bubble, there is no AI bubble.
A technology can end up being dominant and important but still throw off bubbles in the meantime. Stuff like the early Dotcom bubble where everybody could see that the internet was going to be important, and yet funds were allocated to the wrong manifestations of that. Alternatively, some tech is hugely meaningful and yet a motherfucker to actually capitalize on as an individual private company.
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